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Stas Politis, CPFA®
Stas Politis, CPFA®
Upward Wealth Group, LLC Employer-Sponsored Plan Advisor & Investment Representative
https://www.upwardwealthgroup.com (561) 345-3992

At Upward Wealth Group, we understand the critical role of employer-sponsored plans in talent retention and employee financial well-being. By reducing financial stress, these plans foster a healthier work environment and enhance productivity and performance. With our tailored approach, we ensure that your company's retirement plan is not just effective but also aligned with your organizational goals.

Our services cater to a diverse clientele, including self-employed professionals, entrepreneurs, business owners, and executives/trustees seeking to optimize their retirement savings. With decades of experience and a commitment to personalized solutions, we specialize in crafting employer-sponsored retirement plans that suit your specific requirements. Whether you prefer a straightforward, easy-to-administer plan or a more intricate one tailored to your unique circumstances, we've got you covered.

Given their substantial contribution to our retirement nest eggs, we recognize the significance of 401(k) plans in retirement planning. It's essential to synchronize all your savings and investments inside and outside employer-sponsored retirement plans to maximize their combined potential in achieving your retirement objectives. By harmonizing these elements, we can build a comprehensive portfolio that works synergistically toward securing your financial future.

Let's collaborate to design a retirement plan that meets regulatory requirements, empowers your employees, and positions your business for long-term success. Reach out to us today to embark on this journey toward financial security and prosperity.

The ABCs of Zero Coupon Bonds

Investment Read Time: 3 min

At first blush, the idea of a bond that doesn’t pay interest seems oxymoronic. After all, isn’t a bond a debt instrument that pays periodic interest and repays the principal at maturity?1

Zero coupon bonds are indeed debt instruments, but are issued at a discount to their face value, make no interest payments, and pay its face value at time of maturity.

How Does it Work?

Let’s say, a hypothetical zero coupon bond is issued today at a discount price of $743 with a face value of $1,000, payable in 15 years. If you buy this bond, hold it for the entire term and receive the face-value payment, the difference of $257 represents the interest you earned. In this hypothetical example, the bond’s interest rate would amount to approximately 2 percent.

Zero coupon bonds are predominantly issued by the federal government, and typically, they are issued with maturities of 10 to 15 years.

Zero coupon bonds are traded on recognized financial markets and exchanges, which may offer investors liquidity in the event they choose not to hold them to maturity.

Price Swings

One of the biggest risks of zero coupon bonds is their sensitivity to swings in interest rates. In a rising interest rate environment, their value is likely to fall more than other bonds.

Zero coupon bonds are subject to an unusual taxation in which the receipt of interest is imputed each year, requiring holders to pay income taxes on what is called “phantom income.”

Target Dates

For individuals, zero coupon bonds may serve several investment purposes. Zeros may be bought to fund specific future financial obligations, e.g., college savings. By placing them in a U.S. Treasury zero, a parent can be assured that the funds are expected to be fully intact to meet this liability.2

As with any investment, a zero coupon bond’s appropriateness hinges on your individual needs and circumstances. Understanding some of the basic concepts may help you better assess whether they might have a place in your portfolio.

1. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity an investor will receive the interest payments due plus your original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.
2. U.S. Treasury zero coupon bonds are guaranteed by the federal government as to the payment of principal and interest. However, if you sell a Treasury zero coupon bond prior to maturity, it could be worth more or less than the original price paid.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

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